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34
Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure
, 1976
"... This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of ..."
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Cited by 896 (5 self)
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This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem.
On the Concavity of the Consumption Function
, 1995
"... Zeldes (1989), Carroll (1992; 1993), and others have shown that optimal consumption behavior for consumers facing income uncertainty can be remarkably di erent from the certaintyequivalent case. Carroll (1992; 1993) observes that many of the di erences can be attributed to the concavity of the cons ..."
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Cited by 58 (10 self)
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Zeldes (1989), Carroll (1992; 1993), and others have shown that optimal consumption behavior for consumers facing income uncertainty can be remarkably di erent from the certaintyequivalent case. Carroll (1992; 1993) observes that many of the di erences can be attributed to the concavity of the consumption function under uncertainty, but he does not describe the conditions under which the consumption function will be concave. We show that if labor income is stochastic, the consumption function will be concave for many commonly used utility functions, and if both labor income and capital income are stochastic, the consumption function is concave for an even broader group of utility functions.
A Simulation Approach to Dynamic Portfolio Choice with an Application to Learning About Return Predictability
, 2005
"... ..."
Optimal Dynamic Portfolio Selection: MultiPeriod MeanVariance Formulation
 Math. Finance
, 1998
"... The meanvariance formulation by Markowitz in 1950s and its analytical solution by Merton in 1972 paved a foundation for modern portfolio selection analysis in single period. This paper considers an analytical optimal solution to the meanvariance formulation in multiperiod portfolio selection. Spec ..."
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Cited by 24 (1 self)
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The meanvariance formulation by Markowitz in 1950s and its analytical solution by Merton in 1972 paved a foundation for modern portfolio selection analysis in single period. This paper considers an analytical optimal solution to the meanvariance formulation in multiperiod portfolio selection. Specifically, analytical optimal portfolio policy and analytical expression of the meanvariance efficient frontier are derived in this paper for the multiperiod meanvariance formulation. An efficient algorithm is also proposed in this paper in finding an optimal portfolio policy to maximize a utility function of the expected value and the variance of the terminal wealth. Key Words: Multiperiod portfolio selection, multiperiod meanvariance formulation, utility function. This research was partially supported by the Research Grants Council of Hong Kong, grant no. CUHK 4130/97E. The authors very much appreciate the constructive comments from Professor Stanley R. Pliska. y Author to whom a...
Portfolio choice problems
 Handbook of Financial Econometrics, forthcoming
, 2004
"... After years of relative neglect in academic circles, portfolio choice problems are again at the forefront of financial research. The economic theory underlying an investor’s optimal ..."
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Cited by 24 (2 self)
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After years of relative neglect in academic circles, portfolio choice problems are again at the forefront of financial research. The economic theory underlying an investor’s optimal
Do AssetDemand Functions Optimize Over the Mean and Variance of Real Returns? A SixCurrency Test
 Journal of International Economics
, 1984
"... International asset demands are functions of expected returns. Optimal portfolio theory tells us that the coetlicients in this relationship depend on the variancecovariance matrix of real returns. But previous estimates of the optimal portfolio (1) assume expected returns constant and (2) are not s ..."
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Cited by 21 (2 self)
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International asset demands are functions of expected returns. Optimal portfolio theory tells us that the coetlicients in this relationship depend on the variancecovariance matrix of real returns. But previous estimates of the optimal portfolio (1) assume expected returns constant and (2) are not set up to test the hypothesis of meanvariance optimization. We use maximum likelihood estimation to impose a constraint between the coetlicients and the error variancecovariance matrix. For a portfolio of six currencies, we are able statistically to reject the constraint. Evidently investors are either not sophisticated enough to maximize a function of the mean and variance of endofperiod wealth, or else are too sophisticated to do so. 1.
Markowitz revisited: meanvariance models in financial portfolio analysis
 SIAM Rev
, 2001
"... Abstract. Meanvariance portfolio analysis provided the first quantitative treatment of the tradeoff between profit and risk. We describe in detail the interplay between objective and constraints in a number of singleperiod variants, including semivariance models. Particular emphasis is laid on avo ..."
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Cited by 21 (1 self)
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Abstract. Meanvariance portfolio analysis provided the first quantitative treatment of the tradeoff between profit and risk. We describe in detail the interplay between objective and constraints in a number of singleperiod variants, including semivariance models. Particular emphasis is laid on avoiding the penalization of overperformance. The results are then used as building blocks in the development and theoretical analysis of multiperiod models based on scenario trees. A key property is the possibility of removing surplus money in future decisions, yielding approximate downside risk minimization.
Soft liquidity constraints and precautionary savings’, Bank of England Working Paper no
, 2000
"... those of the Bank of England or Monetary Policy Committee members. Ideas for this paper ..."
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Cited by 8 (1 self)
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those of the Bank of England or Monetary Policy Committee members. Ideas for this paper
Introduction to Asset Pricing Theory and Tests
 in The International Library of Critical Writings in Financial Economics
, 2001
"... ..."
Portfolio Choice with Many Risky Assets, Market Clearing and Cash Flow Predictability
, 2000
"... This paper examines portfolio allocations and market clearing prices when the representative agent can allocate across equity portfolios formed on the basis of characteristics like size and booktomarket and portfolio cash flows are predictable. The state space is discrete and priceconsumption rati ..."
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Cited by 3 (0 self)
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This paper examines portfolio allocations and market clearing prices when the representative agent can allocate across equity portfolios formed on the basis of characteristics like size and booktomarket and portfolio cash flows are predictable. The state space is discrete and priceconsumption ratios are obtained portfolio by portfolio simply by inverting an economywide matrix and multiplying this matrix by a portfoliospecific vector. The economywide matrix has the dimensionality of the state space. The paper calibrates cash flow predictability to the data using the consumptionwealth fraction (cay) of Lettau and Ludvigson (2000a) and dividend yield (div) as state variables. Annual cash flow processes are calibrated for three stock portfolios and for the aggregate consumption stream. The economy’s representative agent possesses a relative risk aversion coefficient of either 5 or 10. When cash flow predictability is calibrated to the data using cay as the predictor and risk aversion